CBI fury over doubling of PPF levy

Companies with defined-benefit pension schemes are to be forced to pay twice as much to the Pensions Protection Fund next year, it emerged yesterday, as the PPF announced plans to raise its annual levy to £675m.

Companies with defined-benefit pension schemes are to be forced to pay twice as much to the Pensions Protection Fund next year, it emerged yesterday, as the PPF announced plans to raise its annual levy to £675m.

The news outraged businesses across the country, many of which had complained that last year's levy was too steep.

The business lobbying group, the CBI, said it most objected to the volatility of the levy. Susan Anderson, the CBI's director of human resources policy, said: "Against a background of historically high contributions to company pension schemes, the cost of the PPF is a real concern to business, and the volatility of the levy makes it difficult for companies to plan ahead.

"Many companies are struggling to meet the cost of their liabilities. They need to be reassured that in future the cost of the levy to business will be kept under control."

The PPF collected far less than it had intended last year, due to releasing the formula, by which firms could calculate their levy, prematurely. The PPF board released the formula based on a number of assumptions, such as how markets would perform over the year and how large deficits were.

But markets performed better than expected, and many firms paid down or secured their deficits, subsequently reducing the amount they had to pay the fund. Others successfully lobbied to lower their risk rating, also consequently reducing the amount they had to pay.

Lawrence Churchill, chairman of the PPF, defended the proposed sharp rise in the levy for the year ahead, claiming it was unfair to say it had doubled. " Of course, if people only paid half of what we needed last year, then it's a natural consequence that they have to pay more this year," he said.

Stephen Yeo, a senior consultant at Watson Wyatt, said he believed the fund should consider cutting the benefits which it pays to scheme members, rather than continuing to force business to take the strain.

"The PPF was set up on the basis that the long-term levy would be £300m a year and at that level the whole package of changes was said to be cost-neutral," he said. "The PPF board has the power to hold back increases to the benefits it pays and it should do that rather than increase the levies so far above the level first envisaged."

Pensions campaigner Ros Altmann said it was right to be raising the levy when economic conditions were relatively benign. Mr Churchill said he had no plans to pare back the fund's benefits.